REPUBLIC OF SOUTH AFRICA
Case No.: 85/LM/Oct04
In the large merger between:
Business Venture Investments 904 (Pty) Limited Acquiring Firm
Certain Businesses of Momentum Group Ltd
and m Cubed Holdings Ltd Target Firms
Reasons for Decision
1. The Competition Tribunal issued a Merger Clearance Certificate on 12 January
2005 approving without conditions the merger between the abovementioned merging
parties. The reasons for this decision follow.
The merging parties
2. The primary acquiring firm is Business Venture Investments 904 (Pty) Ltd
(“NEWCO”), a shelf company. NEWCO is a joint venture company created by
Momentum Group Ltd (“Momentum”) and m Cubed Holdings Ltd (“m Cubed”).
Other acquiring firms
3. Momentum and m Cubed jointly control NEWCO. FirstRand Ltd (“FirstRand”) is
the 100% controlling shareholder of Momentum. FirstRand controls FirstRand Bank
Holdings Ltd, which in turn controls FirstRand Bank Ltd. According to the parties,
Momentum controls RMB Asset Management, African Life Assurance, and
Momentum MultiManagers. Momentum has a 100% shareholding in FirstRand
Asset Management (Pty) Ltd (“FirstRand Asset”). FirstRand Asset comprises of
companies including, but not limited to: RMB Asset Management (“RMBAM”); RMB
Investment Services (Pty) Ltd; RMB Unit Trusts (Pty) Ltd; and FutureGrowth Asset
Management (Pty) Ltd (“FutureGrowth”). Momentum also has a 73% shareholding in
Momentum International Multi-Managers (Pty) Ltd (“MIMM”).1
4. M Cubed is a listed company on the JSE and is not controlled by any other firm. It
does, however, control a number of firms.2
5. The primary target firms are certain businesses of Momentum and m Cubed
listed below. They do not have any subsidiaries.
The Merger Transaction
6. The proposed transaction involves NEWCO (a newly formed holding company)
See the record (page 406) – “the FirstRand group structure” (Schedule 13.2).
The details of these entities appear on page 8 and 9 of the record.
acquiring certain businesses of m Cubed and its subsidiaries as well as those of
Momentum.3 M Cubed’s businesses being acquired are: the business of m Cubed
Asset Management (Pty) Ltd operations (“MCAM”), which provides asset
management services (based on the multi-management model) mainly to retirement
funds; the business of Escher Structured Products (Pty) Ltd (“ESP”), which sells
structured products to the retirement / pension fund market and to external financial
service providers; and the Asset Management Outsourcing Services (“AMOS”)
division, which provides asset management administration services to the internal
multi-manager operations and external clients. The Momentum business to be
acquired is the South African multi-manager operations of MIMM.
7. In terms of the Memorandum of Understanding (“MOU”) agreed to by Momentum
and m Cubed, NEWCO will acquire the target firms as outlined above. Momentum
and m Cubed will acquire 40 and 184 shares in NEWCO respectively as a settlement
of the purchase consideration. Momentum will increase its interest in NEWCO to
50% by acquiring 72 additional NEWCO shares from m Cubed, with the result that
the parties will each hold 50% of the shares in NEWCO. M Cubed and Momentum
will equally nominate the board of NEWCO. In the event of a deadlock, a Momentum
representative will have the casting vote. NEWCO will have its own corporate and
business identity, and will operate under a new brand.
8. The parties expressly stated that NEWCO would not acquire all the operations of
m Cubed and Momentum. M Cubed will nevertheless continue to carry on its Wealth
Management Services (being retail asset management services, sale and
management of unit trusts, retail WRAP products and life insurance products), its
specialised investment services and various other stand-alone businesses. It can be
seen from the above that NEWCO is only acquiring Momentum’s domestic (South
African) multi management operations. It would also not acquire the asset
management services carried on elsewhere in the FirstRand group.
Rationale for the Transaction
9. The merging parties’ rationale for this deal is four-fold, namely:
To create a far bigger presence in the multi-management arena, with the
possibility to receive more new business opportunities;
To bulk assets together in order to be able to negotiate lower fees from
underlying asset managers;
To benefit from the joint multi-management skills of the two entities; and
To benefit from economies of scale in respect of administration and other
The merging parties’ activities
10. NEWCO is a shelf company created for purposes of this acquisition. It does not
trade at the moment.
11. The FirstRand Group operates within the financial services industry and
provides the entire spectrum of financial services to it customers. However, the
underlying divisions within the FirstRand Group are relevant to the assessment of the
See the parties’ Memorandum of Understanding of 2/11/2004 (Pages 107-110 of the file).
- MIMM offers a range of products with different risk profiles and different asset
classes mainly to the retirement fund industry.
- The FirstRand Group is involved in asset management services.
- The FirstRand Group also provides structuring for pension funds and
retirement funds for external clients. It appears that other financial institutions
generally offer this service.
- RMBAM and FutureGrowth provide direct asset management services in
competition with the multi-management services of the target firms.
12. M Cubed provides wealth management services, i.e., retail asset management,
sale and management of unit trusts, retail WRAP products and life insurance
products. There are other specialised investment services and other stand-alone
businesses within m Cubed. The following m Cubed activities are relevant for the
- m Cubed – through its multi-manager solutions division – operates a business
similar to MIMM.
- The AMOS business of m Cubed provides asset management services. It
predominantly provides a support role to the multi-management business.
AMOS attends to the back office administration functions of the funds under
the administration of m Cubed. AMOS also has external clients such as
unrelated third party pension funds established by firms such as AECI and
Rand Mutual Assurance. These third party retirement funds simply use the
services of AMOS to facilitate their administration functions, mainly the
- ESP provides structuring services for clients in the pension fund and
retirement industries. It provides capital guarantees only, and thus guarantee
the capital for a fixed period usually for a year. According to the Commission,
if market conditions deteriorate the client benefits as the capital is
guaranteed, and if market conditions improve ESP and the client benefits.
The Target Firms
13. The business of MCAM provides asset management services mainly to retire-
ment funds. ESP sells structured products to the retirement/pension fund market and
to external financial service providers. AMOS (m Cubed’s Division) provides asset
management administration services to the internal multi-manager operations and
external clients. MIMM offers a range of products with different risk profiles and differ-
ent asset classes mainly to the retirement fund industry.
The relevant market4
14. The parties identified the overlapping business operations of m Cubed and
Momentum and those of the Target Firms. These overlaps occur in respect of
structuring, asset management administration services and asset management/multi-
management services. The parties claimed that no overlaps between the parties’
products and/or services would remain within m Cubed and those of the target firms
after transfer from Momentum and m Cubed had taken place.
15. We now turn to consider what these services and/or products entail in brief.
Asset management administration services
Please see the parties’ discussion on product overlaps (Page 47-56) as well as page 6-11 of
the Commission’s Report.
16. The parties pointed out that these services basically encompass the provision of
back office administration functions for the asset management and multi-
management business. All assets are priced daily in every portfolio and the values of
the portfolios are worked out taking cash flows and payments into account.
17. RMB Asset Management, which is (like Momentum) part of the FirstRand Group,
and MIMM provides asset management administrative services similar to those
provided by m Cubed’s Division, AMOS (forming part of the target firm). AMOS
provides these services for the funds administered by m Cubed as well as for
external clients such as 3rd party pension funds. It appears that RMBAM and MIMM
do not provide these services externally. In light of this, the Commission found that
no overlap exists, and did not analyse this market from a horizontal perspective any
Asset management and/or multi-management services
18. As defined elsewhere5, asset management refers to the management of funds
referred to as funds under management by the so-called asset managers on behalf
of various clients such as institutional investors, linked product service providers and
pension funds. Asset management is generally not accessible to individual clients. As
indicated above, asset managers offer a range of products with different risk profiles
and different asset classes. According to the Commission, these products are offered
to different clients (mainly retirement funds) either by direct asset managers (who
directly invest the funds in the stock and bond markets) or by multi-managers (who
act as conduits between the clients and the direct asset managers).
19. MCAM and MIMM’s operations (both of which will form part of NEWCO) overlap
in that they both offer asset management services. In the FirstRand Group,
FutureGrowth Asset Management and RMB Asset Management provide direct asset
management services in competition with the multi-management service businesses
of the target firms.
20. The merging parties assert that multi-managers do not constitute a separate
market, but compete directly with asset managers. According to the parties, the
narrowly defined asset multi-management segment constitutes only 10.2% of the
total asset management industry whilst 89.8% of the funds under management are
managed directly by asset managers.
21. The Commission’s investigation revealed that multi-managers do compete with
asset managers.6 The Commission did not for purposes of this transaction conclude
on the market definition as in its view in either the broadly defined asset management
market or a more narrowly defined multi-management market the transaction was
unlikely to substantially lessen or prevent competition.
22. The parties pointed out that the term ‘structuring’ encompasses a wide range of
activities and products. Both m Cubed (through ESP) and the FistRand Group offer
structuring services to the pension and retirement industries. Therefore the parties
overlap in the market for structured products / structuring services. The parties assert
that although the FirstRand group provides structuring for external clients this is a
See Investec Group Ltd /Fedsure Investments Ltd (Tribunal Case No: 19/LM/Mar01, page 3)
In reaching this view, the Commission consulted with the merging parties’ customers,
KPMG, competitors in the multi-management market, and the Financial Services Board.
general function provided by all financial service institutions.
23. The Commission’s interview with the merging parties revealed that foreign
companies do not exert much of a competitive constraint to their operations as their
clientele is mainly within South Africa. The Commission then defined the geographic
market for each of the relevant market as national as companies operating in the
asset management industry adopt a national pricing strategy and are not location-
bound within South Africa. We concur with the Commission in this regard.
24. We had no concerns pertaining to the overlaps identified above as well as to the
transaction in general, as there was nothing before us to indicate that any
competitive harm would result from the proposed transaction.
25. In the structured products markets the market share figures that the Commission
received from the parties show that ESP’s market share of the structured products is
below 1%. Therefore the merger will lead to an increase in concentration that is trivial
and has little impact on increasing concentration.
26. In respect of the asset management businesses, the extent of concentration
varies greatly depending on whether one regards multi-management as a segment of
the broader asset management market or a relevant sub-market on its own. In the
broader asset management market the merger will lead to the merged entity
(NEWCO) having a share of 26.3%.7 (Of this 6.8% is contributed by Momentum and
19.5% by M-Cubed).
27. If multi-management is an independent market then the merging parties will have
a post-merger market share of 45.86%.
28. There are some suggestions that multi-management may well constitute a
relevant market inter alia the business operates differently, employs people with
different skills, seems to marketed and administered as a stand alone business. We
need not make a conclusive finding on this because although the merged firm would
enjoy a high share of this market it appears that entry is relatively easy and likely to
come from firms in the asset management industry.
29. Indicative of this is the fact that a number of direct asset management companies
(including Sanlam Multi-managers; Chorus; and Access (park) have recently entered
the multi-management industry. The parties asserted that customers could - from the
demand side – easily switch between multi and direct asset management with
decisions being made depending on their aversion to risk.
30. The market also appears to be a very competitive one in which countervailing
power exists. The clients of a multi-manager are large institutions in the retirement
fund industry and they can exert significant pressure on the merging parties should
they engage in anti-competitive behaviour. Clients seem to possess the ability to use
more than one asset manager. The merging parties and the Commission submit that
these clients have the ability to withdraw their funds based on a 30-day notice period
Although there have been some discrepancies between the market share figures provided
by the merging parties, Alexander Forbes and KPMG, the Commission nevertheless did not
query this a lot, but simply adopted the worst-case scenario approach.
and in some cases may withdraw the assets under management on a day’s notice.
31. The Commission further examined the vertical relationships between asset
managers and multi-managers; between AMOS, multi-managers and asset
managers; as well as with regard to services provided by ESP. In our view, the
vertical relationships so identified were not so extensive to cause concern..
32. We agree with the Commission’s submission that this transaction is unlikely to
result in the substantial lessening or prevention of competition irrespective of any
market definition adopted. We accordingly approve this merger unconditionally.
Public Interest Issues
33. There appear to be no public interest issues to militate against the approval of
this transaction. The parties expressly stated that no staff retrenchment programme
is envisaged pursuant to this merger.
_______________ 21 January 2005
Norman Manoim Date
Concurring: David Lewis and Mbuyiseli Madlanga
For the merging parties: Andries le Grange & Marlene Botha (Hofmeyr,
Herbstein & Gihwala)
For the Commission: Hardin Ratshisusu & Asogren Chetty (Mergers &